Tag: Budget

Media Statement by Dr. Ong Kian Ming, Head of the Penang Institute in Kuala Lumpur, and Darshan Joshi, Research Analyst at the Penang Institute in Kuala Lumpur, on the 21st of February 2018

The recent call[1] by noted economist KS Jomo to slash the development expenditure (DE) allocated to the Prime Minister’s department and to scrutinize big infrastructure projects such as the East Coast Rail Line (ECRL) is a timely reminder of an issue that has been previously raised by opposition members of parliament. But what has been lacking thus far is a more systematic analysis of the details of the development expenditure, especially under Prime Minister Najib’s tenure as Finance Minister, and specifically, the DE allocated to the Prime Minister’s Department.

Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 26th of October 2015

“Congratulations” to the Prime Minister for a “People Centric” Budget

I would like to “congratulate” the PM for abolishing the RM950m cooking oil price stabilization scheme for 2016 under the Ministry of Plantations and Commodities which would most likely result in a rise in the price of cooking oil.

I would like to “congratulate” the PM for slashing almost RM9 billion (from 19.3b in 2015 to RM10.6b in 2016) from subsides and cash assistance which would have cushioned the impact of the increase in the cost of living for many Malaysians.

I would like to “congratulate” the PM for abolishing the electric bill subsidy which would almost surely increase the electricity bill for the poor who are the main beneficiaries of this subsidy.

I would like to “congratulate” the BN for collecting an additional RM4.5 billion in GST for the year 2016 (RM39b in 2016 for GST alone compared to RM34.5 from GST and SST in 2015) from the consumers of Malaysia.

I am sure that the increase in BR1M payments of RM1 billion (from RM4.9b in 2015 to RM5.9 in 2016) will more than offset the RM10.1 billion cuts in direct subsidies and the additional RM4.5 billion in GST which you will be collecting from our pockets.

I would also like to thank you for increasing the compensation to the toll concessionaires from RM458.7 million in 2015 to RM593.3 million in 2016 despite the fact that toll prices have been increased recently at 18 major highways. I am sure those poor toll concessionaires which have been suffering from so many years from the low compensation and the lack of toll increases will be able to enjoy their 2016.

“Congratulations” for a “People-Centric” budget for which I’m sure all Malaysians will be eternally grateful for… until the 2017 budget that is.

(P.S. This is written in a sarcastic tone of voice, in case you are wondering)

Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the 25th of October, 2015

Investment Initiatives Announced in the Budget should be treated with caution

In Prime Minister Najib’s budget speech on Friday, he announced a large number of investment initiatives under the “First Priority: Strengthening Economic Resilience” section. These investments total up to Rm137 billion. Those who are hearing these initiatives for the first time may be impressed by the investment which the government is putting into infrastructure and development expenditure. But in actual fact, only 3.1% or RM4.2 billion of what was announced actually appears in the 2016 budget. The rest of the RM132.9 billion or 96.9% are actually off budget items which are financed by Special Purpose Vehicles (SPVs), GLCs, Public Private Partnerships (PPPs) and the private sector.

Investment spending under SPVs accounts for RM82.5 billion or 60.2%. This would include the MRT Lines 1 and 2, the LRT Extension and LRT3 as well as the BRT projects along the Federal Highway and in Kota Kinabalu. The GLC investment spending accounts for RM44.5 billion or 32.4%. This would include Khazanah’s RM6.7 billion in investments in 9 impact areas and Petronas’ investment in the RAPID complex in Pengerang, Johor, valued at RM18 billion in the budget speech. The RM5 billion Malaysia Vision Valley project, as far as I know, will be a largely private sector driven project.[1] And the Jalan Tun Razak Traffic Dispersal Project of RM900 million was announced as a Public Private Partnership (PPP) project. Of the remaining RM4.2 billion in government projects, not much of it are actually brand new initiatives. For example, the allocation for the rural electrification projects and the rural water supply projects worth Rm1.5 billion have been in existence as part of the Rural Basic Infrastructure National Key Results Area (NKRA) under the Government Transformation Program’s (GTP).

Why should the fact that almost 97% of the announced investment initiatives are off-budget items be of concern?

Firstly, some of these projects may never take off or attract the amount of investment announced by PM Najib. For example, the RM11 billion Cyberjaya City Center project comes under Cyberview Sdn Bhd which is a government owned company.[2] According to the 2013 Attorney General report (3rd series), Cyberview also has unpaid arrears to the government totalling RM571 million at the end of 2013. If it is not able to service the interest payments due to the government, it is hard to see how it can finance even some of the RM11 billion required for this project to take off. One can point to the Nexus Karambunai integrated eco-resort initiative that was announced by Najib in the 2011 that was supposed to cost RM3 billion but still has not taken off four years later in 2015. The same healthy scepticism can apply to projects such as the RM7 billion KL Aeropolis which comes under Malaysian Airports as well as the RM5 billion Malaysia Vision Valley project.

Secondly, some of the investment initiatives may not have direct benefits for the rakyat. For example, Khazanah, through its listed entity IHH Healthcare Berhad, will invest approximately RM670 million between 2015 and 2017 in building new hospitals and expanding existing hospitals in Media Iskandar, KL, Klang, Melaka and Kota Kinabalu.[3] But since all of these hospitals are private fee paying institutions, the only beneficiaries will be those who can afford private health care and IHH’s own bottom line. Whether this will translate into more dividends paid by Khazanah to the government still remains to be seen.

Thirdly, any Public Private Partnership (PPP) project which is announced by the federal government should be greeted with great caution. PPPs in Malaysia have a record of being totally not transparent and lopsided in favour of the private sector. The toll concessionaires and the first generation Independent Power Producer (IPP) contracts are notable examples. So when PM Najib announces a traffic dispersal project for Jalan Tun Razak, which is very necessary given the serious congestion which occurs during peak hours along this main thoroughfare in KL, and that it will be funded via a PPP, one should immediately ask which concessionaire would get this project and how much toll motorists would have to pay.

In addition, because these PPPs are negotiated by EPU without any of their details made public, it is very likely that they would end up costing the government (and sometimes the end user) more in the long run than if the government paid for these projects by issuing bonds. For example, a private sector contractor, Zecon Bhd, was given the contract to build and lease the new Children’s Hospital next to UKM for 30 years. The government would have to pay a yearly rental to the operator for the hospital and since the private sector is asking for internal rate of returns (IRRs) in excess of 10%, the government may very well end up paying more in the 30 years than if it were to have built the hospital itself.[4] (Of course, since the terms of the PPP are not publicly disclosed, we don’t know if this is indeed the case).

Fourthly, future generations will ultimately have to pay for the cost of these mega infrastructure projects. The LRT and MRT projects are being funded by bonds which are issued by Special Purpose Vehicles (SPVs) such as DanaInfra which are 100% Ministry of Finance owned companies. It is almost certain that the LRT and MRT operators will not be able to generate enough cashflow to services these multi-billion ringgit loans. When this happens, the government has to step in to pay for the interest on these loans. Our future generations have to pay for this debt although this is something which is not acknowledged by the government.

Fifthly and lastly, the government has not announced any new measures to ensure that its own development expenditure will be spent optimally with minimum leakages. For example, the Malaysian Communications and Multimedia Commission (MCMC) collects more than Rm1 billion every year from the telco companies to improve internet and mobile telephony services to underserved communities. This is the fund from which the Rm1.2 billion to increase rural broadband penetration will be tapped. But this is also the fund which was used to purchase more than 1 million netbooks for teachers and students since 2010. The usage and distribution of these netbooks have been full of shortcomings and criticized by many parties.[5] There is little assurance that this RM1.2 billion set aside to achieve its intended target of increasing rural broadband penetration if the government proceeds with business as usual practices.

In short, before you celebrate the more than Rm100 billion investment initiatives announced by PM Najib, think of whether these investments will be realized, how much leakages will there be and who will have to pay for them eventually.